ECB must prepare for higher inflation – Knot

- Advertisement -

FRANKFURT, Nov 9 (Businesshala) – Euro area inflation is expected to fall below 2% at the end of next year, but the European Central Bank should be prepared for a less benign scenario, avoiding protracted policy commitments as upside risks dominate. It is, said Dutch policy maker Klass Nott. Tuesday.

- Advertisement -

Inflation rose above 4% last month, more than double the ECB’s target of 2%. But the bank has pushed back on calls for tougher policy, arguing that transitory forces are behind the growth and inflation will fall below its target in the coming years.

- Advertisement -

Nott, a conservative member of the rate-setting governing council, also made the case for “largely temporary” price pressures, but warned that some of the temporary factors at play may be more sustainable than once thought.

“Risk dominates above this baseline,” Knott said in a panel discussion hosted by UBS. “And we also need to be prepared for upside scenarios.”

- Advertisement -

Knott’s comments come just weeks before the ECB decided to scrap a 1.85 trillion euro ($2.14 trillion) stimulus plan – the pandemic emergency procurement program – and would likely consider raising other tools to take on Slack. .

In this important decision, the ECB should not brace itself for too long as more sustainable inflation may require early policy action.

“We cannot make long-term unconditional commitments that may be inconsistent with the evolution of the inflation outlook,” Knott said.

Once the emergency purchase ends next March, a less flexible asset purchase program should be the bank’s main tool and keep the door open for the ECB to both increase and decrease bond buying volumes under the scheme, Knott said. Argued.

The effects of tax hikes and past oil price hikes will indeed fade, Knott said, but supply chain bottlenecks and future energy price hikes could keep inflationary pressures in check.

“These momentary pressures are not necessarily short-lived,” Knott said. “Indeed, we have realized that inflationary pressures from these sources last longer than initially thought.”

Wages may also rise faster than they are now, especially if the current bout of inflation is prolonged and companies begin to adjust their wage policy.

Still, the terms of interest rate hikes are “very unlikely” to be met next year, Knott said, echoing the most recent guidance reiterated by a host of ECB policymakers over the past week.

$1 = 0.8655 Euro Reporting by Balazs Corani Editing by Mark Potter


- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox